BloggingStocks writer Georges Yared wrote an excellent piece yesterday in which he wondered whether Crocs Inc. (NASDAQ:CROX) is the next L.A. Gear. If it is, that is not good news for CROX shareholders. As Yared writes, L.A. Gear rose to prominence in the mid- to late-1980s, and faded into oblivion during the 90s (although it is currently working on a comeback). Clothing, particularly when marketed to the teen demographic, is probably the most fickle industry on the planet. As Jerry Reed sang, "When you're hot you're hot ... when you're not you're not."
Investors should tread extremely carefully when investing in hot clothing products. If the popularity of the product wanes, so will the earnings, and so will the stock price. Predictably, many of these companies attract the attention of that much maligned group of investors known as short-sellers, who seek to profit by betting on a declining stock price.
Here's a list of some of what I consider to be the top "Retail Fad" stocks going right now. As a word of warning, I am not saying all these products will turn out to be fads:
Crocs Inc. (NASDAQ:CROX): We've all seen the "shoes" and I really do hope this is a fad, because I can't stand them. Short sellers have also made a big bet on the "shoes" being a fad, as the short interest is currently at 36.92%. Some see high short interest as bullish, as strong news could cause a "short squeeze" when short sellers rush to cover. However, be careful about this line of reasoning: On average, the shorts tend to do more thorough research than the longs, and they are often right. Bottom line: If Crocs are here to stay, CROX probably is too. If you think it's a fad, stay away.
True Religion Apparel Inc. (NASDAQ:TRLG): This is a company that is, in my opinion, much less likely to be a fad. It makes unbelievably nice jeans (many of which run $300 per pair, so I don't have any), and is currently trying to become more than a denim company. It's brought in a former Diesel executive to try to turn the company into a "lifestyle brand." Shorts are skeptical though, as 44.34% of the float is currently sold short.
Heelys Inc. (NASDAQ:HLYS): The other day in the grocery store, some eight-year-old almost killed me as he slid across the aisle in these roller-skate/shoes. The company went public in December and currently sports a market cap of just a hair under a billion dollars. This one-product company has already attracted short-sellers as 13.86% of the float is currently short.
What are some stocks that you think are fads?
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Reader Comments (Page 1 of 1)
3-12-2007 @ 11:51PM
Armchair QB said...
So then what are these companies worth and at what prices are they cheap? Or are companies that are considered "fads" worthless?